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[2008] QSC 108
General information, not legal advice.
Supreme Court of Queensland
2008-05-29
Wilson J
Original judgment source is linked above.
Official Solicitor to the Public Trustee of Queensland for the respondent
[1] Wilson J: Idelia Mary Jaques ("the deceased") died on 1 August 1998. By her will she left her house at Annerley and $30,000 to her daughter Deanna Jaques ("the applicant"), who was then aged 55. She left the residue to the Public Trustee of Queensland ("the respondent") upon the following trust:
5. I DEVISE AND BEQUEATH the rest and residue of my estate both real and personal (hereinafter called "the trust fund") UNTO my Trustee UPON TRUST to pay and apply such part or parts of the income arising from the trust fund and the trust fund if the income therefrom shall at any time or times be insufficient for the purpose as my Trustee shall from time to time in his absolute and uncontrolled discretion think fit in or towards the maintenance comfort and or well being of my said daughter DEANNA JAQUES during her lifetime whether there shall or shall not be any other fund available for the same purpose with power to pay the same to any other person or persons or otherwise to be applied for the purposes aforesaid without being liable to see to the application thereof or for the non-application or misapplication thereof and subject thereto to stand possessed of the trust fund and so much of the income therefrom as shall not have been expended by my Trustee pursuant to the aforegoing trusts UPON TRUST to sell call in and convert into money such part or parts thereof as shall not consist of money with power to postpone such sale calling in and conversion for such period or periods as my Trustee shall think fit and to stand possessed of the proceeds of such sale calling in and conversion together with all other moneys arising from or forming part of my residuary estate UPON TRUST as follows that is to say:
(a) as to a one-half (1/2) part or share thereof UNTO the QUEENSLAND CANCER FUND of 50 Water Street Spring Hill Brisbane in the said State for the general charitable purposes of Queensland Cancer Fund
(b) as to a one-half (1/2) part or share thereof UNTO the Trustees of the AUSTRALIAN NEUROLOGICAL FOUNDATION (QUEENSLAND BEQUEST FUND) for the charitable purposes of the foundation in Queensland.
[2] By an originating application filed on 30 April 2008 the applicant seeks the following relief:-
(a) review the respondent's administration of the trust established by the will of the late Adelia [sic] Mary Jaques dated 25 October 1985;
(i) that on a true construction of clause 5 of the Will the primary beneficiary of the trust established under the Will is Deanna Jaques, and that the purpose of the trust is for her maintenance, comfort and well being;
(ii) that there is no obligation on the respondent to ensure equality between Deanna Jaques and any remainder or residuary beneficiary;
(iii) that there is no obligation on the respondent to ensure that there is any remainder or residue in the trust following the death of Deanna Jaques;
(iv) that the respondent is not limited to the application only of income for the maintenance, comfort and well being of Deanna Jaques;
(v) to make available funds from the trust to the applicant to be applied for her sole benefit prior to 30 June 2008 in accordance with the financial plan proposed on her behalf.
[3] Notice of the application was given to both charities, but neither appeared at the hearing.
[4] At the time of her death the deceased was an elderly widow who suffered from dementia. She had been living in the house in Annerley with the applicant until about two years previously, when she had moved into a nursing home.
[5] The applicant is a triple certficated nurse, but she has suffered ill health, both mental and physical, for much of her adult life. She has never married, and has no dependants. At the time of the deceased's death, she was not working and was in receipt of a disability pension. She has remained incapable of undertaking employment. At present she receives support and therapy from a variety of sources - a paid day care service, a psychologist (fortnightly), a mental health support group (weekly), a psychiatrist, an occupational therapist and a general practitioner.
[6] Counsel for the respondent informed the Court that the respondent is considering making an application to the Guardianship and Administration Tribunal for the appointment of an administrator pursuant to the Guardianship and Administration Act 2000, but has not yet decided whether to do so.
[7] The applicant has continued to live in the house at Annerley since the deceased's death. It fell into a state of disrepair and neglect. In 2006 Ms Meg Perkins, a psychologist who has been seeing the applicant regularly since about 2000, assisted her in her dealings with the respondent. In the ensuing 18 months or so extensive renovations and repairs were performed and new furniture, white goods, etc were acquired; regular home help and gardening assistance was arranged.
[8] The residue of the estate is now approximately $760,000.00, made up as follows:
(a) 28849 Perpetual Monthly Income Fund Units $28,849.11
(b) 16570 Perpetual Industrial Share Fund Units $36,636.61
(c) Public Trustee Investment Fund (Higher Growth) $253,273.12
(d) Public Trustee Investment Fund (Growth) $174,308.91
(e) Public Trustee Investment Fund (Australian Equities) $192,773.57
[9] Until about 30 June 2006 the respondent paid the applicant a fortnightly allowance of $100.00 as well as income tax from the trust fund. The allowance was subsequently increased to $1,155.00, and then $1,255.00 per fortnight. Between April 2006 and October 2007 almost $67,000 was paid out of the estate for the renovations and repairs and the acquisition of new furniture and white goods.
[10] On 18 August 2006 the respondent received advice on an investment strategy for the trust from ABN Amro Morgans. The report began as follows:
The Public Trustee of Queensland manages the financial affairs of Idelia Mary Jaques Testamentary Trust according to the provisions of the last will and testament of Idelia Mary Jaques.
Under the Will, the life tenant beneficiary is Ms Deanna Jaques. The remaindermen beneficiaries are:
The Public Trustee has a duty to balance the interests of the "life tenant" and the "remaindermen". This includes endeavouring to structure the portfolio to optimise income whilst retaining capital intact wherever possible, in real terms. The use of Investment Trusts, particularly those that are growth orientated, provides a better likelihood of those objectives being achieved, than traditional investments do.
The portfolio recommendations made below have been formulated with these objectives in mind.
[11] That advice was implemented. The investment strategy for life estates generally was reviewed by ABN Amro Morgans in July 2007. There was no substantial change.
[12] The applicant and her advisors have criticised the investment strategy adopted by the respondent on several grounds. First, they assert that the underlying premise that this trust is one where the respondent has a duty to balance the interests of the applicant as life tenant and the charities as remaindermen is inconsistent with the terms of the will. Secondly, they assert that the strategy does not take advantage of "more tax effective environments" including superannuation and that it has led to the loss of Centrelink and Medicare concessions.
[13] Mr T A Bone of BDO Kendalls provided the applicant with advice on the investment of the residue (taken to be $784,000.00) on 29 February 2008. In summary he recommended that $150,000.00 remain under the management of the respondent and be invested for long term growth, and that $600,000.00 be invested in superannuation ($150,000.00 before 30 June 2008 and $450,000.00 between 30 June 2008 and the applicant's 65th birthday a couple of weeks later). That would leave approximately $30,000.00 to provide for immediate expenses and proposed further renovations.
[14] The applicant's solicitors have urged the respondent to implement the investment strategy proposed by BDO Kendalls, but he has declined to do so.
[15] The matter came before the Court in the Applications List in mid May 2008. It became tolerably clear that the applicant was seeking immediate relief in the form of a review of the respondent's decision not to invest the moneys in accordance with the advice of BDO Kendalls, and a direction from the Court that it do so. The application for the removal of the respondent as trustee was not pursued. When pressed for a statement of the relief being sought, Counsel for the applicant provided the following:
(i) that on a true construction of clause 5 of the Will the primary beneficiary of the trust established under the Will is Deanna Jaques, and that the purpose of the trust is for her maintenance, comfort and well being;
(ii) that there is no obligation on the respondent to ensure equality between Deanna Jaques and any remainder or residuary beneficiary;
(iii) that there is no obligation on the respondent to ensure that there is any remainder or residue in the trust following the death of Deanna Jaques;
(iv) that the respondent is not limited to the application only of income, for the maintenance, comfort and well being of Deanna Jaques;
(a) execute a will leaving her estate the death benefit from her superannuation fund to the charities who are the beneficiaries in the will of the late Idelia Mary Jaques;
(b) make, and shall keep in force, a binding nomination of her estate as being the beneficiary of any superannuation fund death benefit;
(c) report to the Public Trustee of Queensland each quarter on the state of the superannuation fund;
Trusts Act 1973 (Qld) s 8
[16] Section 8 of the Trusts Act 1973 (Qld) provides:
8 Application to court to review acts and decisions
(1) Any person who has, directly or indirectly, an interest, whether vested or contingent, in any trust property or who has a right of due administration in respect of any trust, and who is aggrieved by any act, omission or decision of a trustee or other person in the exercise of any power conferred by this Act or by law or by the instrument (if any) creating the trust, or who has reasonable grounds to apprehend any such act, omission or decision by which the person will be aggrieved, may apply to the court to review the act, omission or decision, or to give directions in respect of the apprehended act, omission or decision; and the court may require the trustee or other person to appear before it and to substantiate and uphold the grounds of the act, omission or decision which is being reviewed and may make such order in the premises (including such order as to costs) as the circumstances require.
(2) An order of the court under subsection (1) shall not -
(a) disturb any distribution of the trust property, made without breach of trust, before the trustee became aware of the making of the application to the court; or
(b) affect any right acquired by any person in good faith and for valuable consideration.
(3) Where any application is made under this section, the court may -
(a) if any question of fact is involved - determine that question or give directions as to the manner in which that question shall be determined; and
(b) if the court is being asked to make an order which may adversely affect the rights of any person who is not a party to the proceedings - direct that that person shall be made a party to the proceedings.
[17] Section 8 does not contemplate a wide ranging review of the administration of a trust estate, but rather review of particular acts, omissions or decisions. This is consistent with the Court's traditional reluctance to interfere with the discretionary acts of trustees. In re Whitehouse, Macrossan J said:
It seems to me that the power of the court under s. 8 to review a trustee's acts and decisions is one which should not be narrowly construed. By this I mean that the jurisdiction should not be read down or unduly confined. On the other hand, I think it would be wrong to suggest that although the jurisdiction to undertake a review is wide, the court would lightly interfere with a discretionary decision made by a trustee. The courts will continue to bear in mind that discretionary trust powers are vested in trustees for the purpose of decision by them and the traditional reluctance to interfere with their decisions will, for good reason, continue. If, notwithstanding this reluctance, a proper case is made out, then I do not doubt that the court has wide power. Speaking for myself, I am not persuaded that it is possible or advisable to attempt to limit in advance the ambit of the cases in which the court will move under its new statutory power of review. Although some similarities may exist with that class of case where courts will review the decisions of liquidators and trustees in bankruptcy, they being officers of the court, there must be differences as well when one comes to consider the question of review of the acts of trustees of private trusts. The decision of Dunn J. in Re Koczorowski[1] was referred to with his opinion, given in that case at pp. 184 and 185, that the court's task in reviewing decisions under s. 8(1) is similar to the task which is performed in reviewing the decisions of liquidators and trustees in bankruptcy.
With due consideration for that view and with the greatest of respect, speaking for myself I find it more helpful to think of the practical limitations upon the court's power under s. 8(1) of the Trusts Act, as arising out of the traditional reluctance of the courts to interfere with the discretionary acts of private trustees and out of the very good reasons for that approach. I agree that a heavy onus lies upon a person seeking a review of a trustee's decision.[2]
[18] The true construction of the will was not fully argued before me, and in the circumstances it would be inappropriate for me to express any final view upon it. However several observations can be made.
[19] This is not simply a trust for the applicant as life tenant to receive the income from the estate and the charities as remaindermen to receive the capital. The deceased's intention was to provide for the maintenance, comfort and well being of the applicant. The level of provision from time to time is a matter in the absolute and uncontrolled discretion of the respondent. If the income is insufficient, then there may be recourse to capital for this purpose.
[20] The respondent has a duty to exercise his own judgment in determining the appropriate amount of provision to be made from time to time. The exercise of his discretion must be properly informed. In Scott v National Trust for Places of Historic Interest, Robert Walker J said:
Certain points are clear beyond argument. Trustees must act in good faith, responsibly and reasonably. They must inform themselves, before making a decision, of matters which are relevant to the decision. These matters may not be limited to simple matters of fact but will, on occasion (indeed, quite often) include taking advice from appropriate experts, whether the experts are lawyers, accountants, actuaries, surveyors, scientists or whomsoever. It is however for advisers to advise and for trustees to decide.[3]
A trustee's duty in this regard is discussed by Ford and Lee in their work Principles of the Law of Trusts[4] and by Underhill and Hayton in Law relating to Trusts and Trustees.[5] It is not sufficient for the respondent simply to react to any statement of needs which may be provided by the applicant. The respondent has an obligation to make his own assessment from time to time. That she is presumed to have capacity for personal and financial matters pursuant to the Guardianship and Administration Act 2000[6] and that her dignity must be respected[7] do not lessen the respondent's obligation to make his own assessment, despite the tension between that obligation and these principles in a case such as the present.
[21] The extent of the respondent's obligation of fairness between different classes of beneficiaries depends upon the true intention of the deceased; that is to be ascertained upon the proper construction of the will. Because the argument before me was limited, I do not express any final view upon the extent of the obligation in the particular circumstances. There will be cases where it is for the trustee to determine the relative weight to be given to their respective interests from time to time, and there will be others where the settlor's primary intention was to benefit one beneficiary or where any exercise of discretion would inevitably benefit one beneficiary at the expense of another.[8]
[22] A trustee is under no obligation to give reasons for the way in which he exercises a discretion, but where he does give reasons, a Court may examine them. In Karger v Paul, McGarvie J said that the reasons may be reviewed only as part of the process of ascertaining whether the trustee exercised his discretion in good faith, upon a real and genuine consideration and in accordance with the purposes for which the discretion was conferred.[9] In my view under section 8 of the Trusts Act 1973 (Qld) the reasons may be looked at for the further purpose of impugning the decision of the trustee on the ground that he was wrong on the facts or that he made an unwise or unjustified exercise of discretion in the circumstances.
[23] The applicant's solicitors made a copy of the advice from BDO Kendalls available to the respondent, and then a meeting took place. By letter dated 11 April 2008 the respondent's solicitor summarised the matters discussed and the respondent's position as follows:-
Deanna owns the house that she resides in absolutely and free of any encumbrance.
Deanna currently receives $1,255 per fortnight from the trust. My client also directly pays from the trust, $1,500 per month for "Home Help", the cost of lawn mowing, and Deanna's Occupational Therapy and Psychiatrist expenses.
The above payments (after tax) exceed the annuity proposed in the Statement of Advice.
My client is only a trustee under the Will and has no power to inspect Deanna's house without her invitation.
My client has funded extensive renovations to her house and would favourably consider any reasonable request for further advances.
There is no disagreement that Deanna is the primary object of the Trust, however, my client has a duty to act fairly when making investment decisions affecting the different class of beneficiaries[10].
As it is proposed that more than 80% of the capital be paid into a superfund, the payment of the Death Benefits on Deanna's death is a substantial issue. Prima facie they would not be paid to the residuary beneficiaries provided in the deceased's will. (On my calculations and based on assumptions in the Statement of Advice, the Death Benefits would still be worth approximately $170,000 (in today's value) on her death in 24 years.[11] Should she die one year after the fund is established, the Death Benefits would be worth over $600,000).
Even if there were no changes to the current legislation and with the benefit of long term, complex, expensive agreements and ancillary documents, I contend that there could still be no guarantee that the Death Benefits would be paid to the residuary beneficiaries on Deanna's death. Deanna could have a "spouse" at the time of her death and fail to renew her Binding Death Nomination for whatever reason. Her estate could also be subject to claims (e.g. family provision, constructive trust, debtors).
I also contend that the report of Leanne Jackson, clinical neuropsychologist, dated 12 September 2007 suggests that Deanna may not have capacity to enter into and perform complex agreements.
The Statement of Advice proposes that the Public Trustee retain a fund of approximately $150,000. However, following any payment of fees and outlays of $20,000 for estate and financial planning rendered by or through your office and after funding the requested bathroom renovation work, the current funds under management (approximately $730,000) would not allow a balance fund of even $100,000 to be managed by my client for Deanna's ongoing needs.
With the money in the proposed superfund not being accessible, Deanna's requirements for additional funding for the rest of her life could only be met from a much more limited capital base. If the amount of the proposed annuity is generally or periodically insufficient, the fund to be managed by my client may be extinguished well before her death. In any event, implementation of the proposal would significantly reduce the flexibility my client currently has to meet large or sudden requirements over the remainder of Deanna's life and may be contrary to the intent of the Trust.
The proposal in the Statement of Advice would lead to there being two separate fund managers. This would seemingly lead to an inherent increase in the level of overall management fees and costs. The splitting of the capital base might also reduce the gross rate of return that a single fund could achieve.
It is claimed that Deanna would again qualify for a Commonwealth Senior's Health Card, however, the likely financial benefits have not been quantified. We note that Deanna holds private health insurance.
It seems to be conceded in the Statement of Advice that there will be no benefit under the proposal to Deanna with respect to her Centrelink payments.
Although there is disclosure of the 'placement fee' and the 'initial fees' payable to the investment adviser, there is no reference to whether any and what percentage of the superfund would also be payable in any 'entry', and ongoing 'management' and/or 'investment fees' to the superfund manager, as is usually charged.
It seems there is no comparison with the existing investment structure or analysis in the Statement of Advice to suggest that the proposal, after the payment of all taxes and fees, is likely to produce superior returns.
[24] Mr Prostamo, the respondent's director of investment services, has sworn an affidavit in which he has pointed to problems with the superannuation proposal put forward by BDO Kendalls, including:
(i) that it would result in loss of control of the bulk of the capital (in other words the bulk of the capital would be transferred out of the trust estate established by the will into superannuation funds);
(ii) that the taxation benefits would not be substantial;
(iii). that a binding financial nomination in favour of the charities could not be made; and
(iv) that the majority of the death benefits would be taxable.
[25] The Court is asked to review the exercise of the trustee's discretion in declining to follow the advice of BDO Kendalls. Even if on the proper construction of the will the deceased's primary concern was the maintenance, comfort and well being of the applicant, with a corresponding weakening in the trustee's obligation of even handedness in his treatment of beneficiaries of different classes, I am unpersuaded that any basis for interference has been made out. There is no suggestion of bad faith. Whether or not the respondent was adequately informed as to the applicant's needs in the early years of his administration of the trust, he is now fully informed. This is not a contest between two investment strategies. The one adopted may be to some extent flawed because it is premised upon the respondent having to balance the interests of the applicant and the charities, but the real question before the Court (as I understood the argument) is whether the respondent should be directed to adopt the BDO Kendalls' strategy. Were it to adopt that strategy, management of the bulk of the capital would pass from the respondent to the trustee of the superannuation fund with an immediate and drastic reduction in the capital which might eventually pass to the charities. The passing of unexpended capital to the charities on the death of the applicant would be ultimately dependent on her making a binding financial nomination in favour of her estate, her renewing that nomination, and her making the appropriate provision in her will. Such a scheme for the disposition of the capital would be inconsistent with the express provisions in the will giving the respondent absolute and uncontrolled discretion to apply capital towards the maintenance, comfort and or well-being of the applicant "if the income shall at any time or times be insufficient for the purpose" and on her death requiring him to hold unexpended capital and income for the charities. Moreover, having regard to the opinion of Mr Prostamo, BDO Kendalls' strategy would not necessarily be to the financial advantage of the applicant. The respondent has not been shown to have erred in fact or to have exercised his discretion in a way which was unwise or unjustified.
[26] I decline to interfere with the exercise of discretion. The application should be dismissed.
[27] There was a subsidiary unresolved issue between the parties in relation to a request made by the applicant's solicitors for payment of an amount of approximately $20,000 for various expenses incurred on her behalf. I gained the impression that once full particulars of the amount were supplied (as they were during the hearing) the parties would be able to resolve this without intervention by the Court. I will allow liberty to apply in case they cannot do so.
[28] I order that the application be dismissed and that there be liberty to apply.
[29] Having heard counsel on costs, I further order that both parties' costs of and incidental to the application be paid out of the trust fund established by the will of Idelia Mary Jaques, deceased, on the indemnity basis, the quantum of such costs to be agreed, or in the absence of agreement, to be assessed pursuant to the UCPR.
Jaques
Public Trustee of Qld as Executor and Trustee of the Estate of Jaques dec'd